SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE l3D
Under the Securities Exchange Act of 1934
(Amendment No. ___)
INTERACTIVE MAGIC, INC.
________________________________________________________________________________
(Name of Issuer)
Common Stock, par value $.10 per share
________________________________________________________________________________
(Title of Class of Securities)
45838M104
________________________________________________________________________________
(CUSIP Number)
with a copy to:
Jacob Agam, Chairman of the Board Steven M. Skolnick, Esq.
Vertical Financial Holdings Lowenstein Sandler PC
c/o Vertical Capital Ltd. 65 Livingston Avenue
Westbourne, The Grange Roseland, New Jersey 07068
St. Peter Port (973) 597-2476
Guernsey, Channel Islands GY13BG
011-44-1481-716-278
________________________________________________________________________________
(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications)
July 9, 1999
________________________________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule l3G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box. [X]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Sections 240.13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
CUSIP NO. 45838M104 Page 2 of 16 Pages
________________________________________________________________________________
1) Names of Reporting Persons/I.R.S. Identification Nos. of Above
Persons (entities only):
Vertical Financial Holdings
________________________________________________________________________________
2) Check the Appropriate Box if a Member of a Group (See Instructions):
Not Applicable
________________________________________________________________________________
3) SEC Use Only
________________________________________________________________________________
4) Source of Funds (See Instructions): WC
________________________________________________________________________________
5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
Not Applicable
________________________________________________________________________________
6) Citizenship or Place of Organization: Switzerland
________________________________________________________________________________
Number of 7) Sole Voting Power: 2,045,649*
___________________________________________
Shares Beneficially 8) Shared Voting Power: 0
Owned by ___________________________________________
Each Reporting 9) Sole Dispositive Power: 825,566**
___________________________________________
Person With: 10) Shared Dispositive Power: 0
___________________________________________
________________________________________________________________________________
11) Aggregate Amount Beneficially Owned by Each Reporting
Person: 2,045,649*
________________________________________________________________________________
12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
Not Applicable
________________________________________________________________________________
13) Percent of Class Represented by Amount in Row (11): 19.1%
________________________________________________________________________________
14) Type of Reporting Person (See Instructions): CO
________________________________________________________________________________
* Includes (i) 398,172 shares owned by Vertical Financial Holdings ("Vertical"),
(ii) 427,394 shares owned by entities in which Vertical owns equity interests
entitling it to varying percentages of the profits resulting from the sale of
the shares of common stock held by each such entity and (iii) 1,220,083 shares
owned by other persons for which Vertical possesses sole voting power.
** Includes (i) 398,172 shares owned by Vertical and (ii) 427,394 shares owned
by entities in which Vertical owns equity interests entitling it to varying
percentages of the profits resulting from the sale of the shares of common
stock held by each such entity.
<PAGE>
CUSIP NO. 45838M104 Page 3 of 16 Pages
Vertical Financial Holdings ("Vertical") hereby amends the Schedule
13G filed with the Securities and Exchange Commission on February 16, 1999
relating to the shares of common stock, par value $.10 per share (the "Common
Stock"), of Interactive Magic, Inc. (the "Company") as follows:
Item 1. Security and Issuer.
This statement on Schedule 13D (the "Schedule 13D") relates to the
shares of Common Stock of the Company whose principal executive offices are
located at 215 Southport Drive, Suite 1000, Morrisville, North Carolina 27560.
Item 2. Identity and Background.
Vertical is a corporation organized under the laws of Switzerland.
Vertical is a European-based merchant banking firm focusing primarily on
investments in the high technology industry. Vertical's address is
Hambrechtikerstrasse 61, CH-8640, Rapperswil, Switzerland. Set forth below are
the name, present principal occupation or employment, the current business
address and citizenship of each director and executive officer of Vertical:
Jacob Agam. Mr. Agam serves as the Chairman of the Board of Vertical.
Mr. Agam also serves as the Chairman of the Board of the Company, the Chairman
of the Board and Chief Executive Officer of IAT Multimedia, Inc., a marketer of
personal computers, components, peripherals and software, and the Chairman of
the Board of Gruppo Spigadoro N.V., a manufacturer of food and animal feed. Mr.
Agam is a founder and serves as the Chairman of the Board of Orida Capital Ltd.
and Vertical Capital Ltd., each a merchant banking and venture capital firm. Mr.
Agam is a citizen of Israel and his business address is c/o Vertical Capital
Ltd., Westbourne, The Grange, St. Peter Port, Guernsey, Channel Islands, GY13BG.
Bruno Derungs. Mr. Derungs serves as a Managing Director of Vertical.
Mr. Derungs is the principal of Derungs Treuhandgesellschaft AG, a financial
consulting and fiduciary company and the record owner of Vertical. Mr. Derungs
is a citizen of Switzerland and his business address is c/o Vertical,
Hombrechtikerstrasse 61, CH-8640 Rapperswil, Switzerland.
William Dartmouth. William Dartmouth serves as a director of Vertical.
Mr. Darmouth has been a private investor for the past five years. William
Dartmouth is a citizen of Great Britain and his business address is 30 St.
James's Street, London, England SW1.
Neither Vertical nor, to the best of its knowledge, any of its
directors or executive officers has ever been convicted in any criminal
proceeding, nor has been a party to any civil proceeding commenced before a
judicial or administrative body of competent jurisdiction as a result of which
such entity or person was or is now subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
<PAGE>
CUSIP NO. 45838M104 Page 4 of 16 Pages
Item 3. Source and Amount of Funds or Other Consideration.
On February 4, 1998, pursuant to the terms of a Stock Purchase
Agreement, Vertical, Pampero Limited, Ludwig Rupport, Ullrich Angersbach, Lupin
Investment Services Ltd. ("Lupin"), Henilia Financial Ltd. ("Henilia") and
Suriel Financial Consulting (collectively, the "Series B Investors") purchased
an aggregate of 778,746 shares of the Company's Series B Preferred Stock for
$3,500,000. The shares of Series B Preferred Stock converted into 2,045,649
shares of Common Stock upon the consummation of the Company's initial public
offering in July 1998 (the "IPO"). The Series B Investors have given Vertical a
proxy granting Vertical voting power with respect to all of the shares of Common
Stock owned by the Series B Investors. Vertical paid approximately $1,400,000
for its shares of Series B Preferred Stock out of its working capital.
Item 4. Purpose of Transaction.
At the time of the acquisition of the securities of the Company
described herein, Vertical acquired such securities for investment purposes and
Vertical had no plans or intentions which related to or would have resulted in
any of the transactions required to be described in Item 4 of Schedule 13D.
On July 9, 1999, on behalf of Vertical, Avi Suriel, a representative
of Vertical, delivered an e-mail to the Chairman of the Board and Chief
Executive Officer of the Company, proposing that the Board of Directors consider
restructuring the composition of the Board of Directors to include, among other
representatives, three nominees selected by Vertical.
On July 23, 1999, on behalf of Vertical, Jacob Agam, the Chairman of
the Board of Vertical, delivered a letter to the Chairman of the Board and Chief
Executive Officer of the Company, proposing that the Board of Directors consider
Vertical's previous proposal of restructuring the composition of the Board of
Directors of the Company and setting the date for the Company's annual meeting
of shareholders.
On July 29, 1999, on behalf of Vertical, Mr. Agam, delivered a letter
to the Chairman of the Board and Chief Executive Officer of the Company,
proposing that the Board of Directors consider Vertical's previous proposal of
setting the date for the Company's annual meeting of shareholders.
As a result of the letters described above and various conversations
between representatives of Vertical and representatives of the Company, on
August 16, 1999, the Company entered into an agreement with J.W. Stealey, the
Chairman of the Board and Chief Executive Officer of the Company, and Vertical.
Under the terms of the agreement, Mr. Stealey resigned as the CEO of the Company
and entered into a consulting arrangement with the Company. In addition, the
Company and Mr. Stealey agreed to use their best efforts to cause the Board of
Directors to appoint Mr. Agam to the vacancy on the Board of Directors resulting
from the resignation of Avi Suriel from the Board of Directors and to appoint
Mr. Agam as Chairman of the Board. The parties also agreed that (i) so long as
Vertical owns at least 10% of the outstanding shares of the Company, Vertical
shall have the right to appoint two additional nominees (in addition to Mr.
Agam) for election to the Board of Directors at the Company's Annual Meeting of
Stockholders and (ii) so long as Mr. Stealey owns at least 10% of the
outstanding shares of the Company, Mr. Stealey shall have the right to appoint
himself and a nominee for election to the Company's Board of Directors at the
Company's Annual Meeting. Mr. Stealey and Vertical also agreed to vote, and to
direct their nominees to vote, for each other's nominees at the next two Board
elections.
<PAGE>
CUSIP NO. 45838M104 Page 5 of 16 Pages
Depending upon the Company's financial condition, results of
operations, future prospects and other factors, Vertical may, and hereby
reserves the right to, communicate with other shareholders of the Company or
persons who may desire to become shareholders of the Company, and the Company's
management and its Board of Directors. Except as described above, Vertical has
no plans or intentions of the type set forth in Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
Based upon information set forth in the Company's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on August 16, 1999,
as of August 12, 1999, there were 10,690,183 shares of Common Stock issued and
outstanding. As of such date, for the purposes of Rule 13d-3, Vertical
beneficially owned an aggregate of 2,045,649 shares of Common Stock, or 19.1% of
the issued and outstanding shares of Common Stock, including (i) 398,172 shares
owned by Vertical, (ii) 427,394 shares owned by Lupin and Henilia in which
Vertical owns equity interests entitling it to varying percentages of the
profits resulting from the sale of the shares of common stock held by each such
entity and (iii) 1,220,084 shares owned by the other Series B Investors over
which Vertical has voting power pursuant to a proxy agreement. Pursuant to
agreements with Lupin and Henilia, the trustee of these entities has voting and
dispositive power over the shares of common stock held by each entity, although
Vertical retains the right to appoint or terminate the appointment of the
trustee.
Vertical has sole power to vote or to direct the vote of 2,045,649
shares of Common Stock and has sole power to dispose or to direct the
disposition of 825,566 shares of Common Stock. Except as described above,
Vertical does not have shared power to vote or to direct the vote or shared
power to dispose or to direct the disposition of any shares of Common Stock.
During the past sixty days, there were no transactions in the shares
of Common Stock, or securities convertible into or exchangeable for shares of
Common Stock, by Vertical or any person or entity controlled by Vertical or any
person or entity for which Vertical possesses voting control over the securities
thereof, except as described in this Schedule 13D.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
Except as described in this Schedule 13D, no contracts, arrangements,
understandings or similar relationships exist with respect to the securities of
the Company between Vertical and any person or entity.
Item 7. Material to be Filed as Exhibits.
(1) Letter dated July 9, 1999 from Avi Suriel to J.W. Stealey.
(2) Letter dated July 23, 1999 from Jacob Agam to J.W. Stealey.
(3) Letter dated July 29, 1999 from Jacob Agam to J.W. Stealey.
(4) Agreement dated August 16, 1999 among the Company, Vertical and
J.W. Stealey.
<PAGE>
CUSIP NO. 45838M104 Page 6 of 16 Pages
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 15, 1999
VERTICAL FINANCIAL HOLDINGS
/s/ Jacob Agam
--------------
Name: Jacob Agam
Title: Chairman of the Board and Chief Executive Officer
Attention: Intentional misstatements or omissions of fact constitute Federal
criminal violations (See 18 U.S.C. 1001).
<PAGE>
CUSIP NO. 45838M104 Page 7 of 16 Pages
EXHIBIT INDEX
Page No. In
Sequential
Numbering
Exhibit No. Exhibit Name System
(1) Letter dated July 9, 1999 from Avi Suriel
to J.W. Stealey 8
(2) Letter dated July 23, 1999 from Jacob Agam
to J.W. Stealey 9
(3) Letter dated July 29, 1999 from Jacob Agam
to J.W. Stealey 11
(4) Agreement dated August 16, 1999 among, the
Company, Vertical and J.W. Stealey 13
CUSIP NO. 45838M104 Page 8 of 16 Pages
Exhibit 1
Subject: Vertical's Proposal
Date: Fri, 09 Jul 1999 13:15:10-0700
From: avi suriel
Organization: Suriel Financial Consulting
To:
Dear Bill:
Following our conversation today, I'd like to summarize our suggested agreement
for your consideration:
1) The Board will be restructured to include 3 members nominated by Vertical,
2 independent directors nominated by the Underwriter (Royce), and 2 by you (we
are open to include 3 of your team).
INTENTIONALLY OMITTED
Sincerely,
Avi
CUSIP NO. 45838M104 Page 9 of 16 Pages
Exhibit 2
VIA FACSIMILE - (919) 462-3081
July 23, 1999
J.W. Stealey
Chairman and Chief Executive Officer
iEntertainment Network, Inc.
215 Southport Drive, Suite 1000
Morrisville, North Carolina 27560
Dear Bill:
As we have expressed to you on several occasions, we are deeply concerned over
the direction of iEntertainment Network, including the composition of the
Board of Directors and the failure of management to call for an annual general
meeting of shareholders. We are aware that Royce Investment Group, on behalf
of its clients who are shareholders of the Company, has expressed to you in
writing a similar concern. In addition, we believe that Rose Glen Capital is
also concerned about these issues.
As you are aware, the rules of the Nasdaq Stock Market require that an annual
meeting be held each year. More importantly, our counsel has advised that the
North Carolina Business Corporation Act provides that a court may order a
shareholders' meeting upon application of any shareholder, if an annual meeting
has not been held within 15 months after the previous annual meeting.
The last shareholders' meeting was held in May 1998, 14 months ago. This is
highly unusual for any public company, but particularly so for one that went
public one year ago and has not yet held a public shareholders' meeting. Such
a meeting is now long overdue, and your failure as the Chairman of a public
company to call for it creates further doubts in the market regarding your
motives and reputation. Moreover, this failure, particularly at a time when the
stock price is languishing, further increases the possibility of a shareholders'
lawsuit.
In addition, within one month, any shareholder will be entitled to obtain a
court order directing the Company to hold an annual meeting. Obviously, such a
court order is a drastic measure (especially for a public company), and we hope
to avoid the necessity of such action.
We certainly do not want to engage in a dispute over shareholders' meetings and
Board composition. This is clearly not in the Company's best interest in the
short-term. However, as we finalize the Company's transition to an Internet
focus, the long-term interests of Vertical and other shareholders ultimately
take precedence over short-term concerns. We therefore urge you to give
<PAGE>
CUSIP NO. 45838M104 Page 10 of 16 Pages
serious consideration to our previous proposal regarding the restructuring of
the Board. We believe that our proposal is in the best interests of all
shareholders and will result in an orderly transition, eliminating the need for
distractions.
We hereby request that you schedule an annual shareholders' meeting as soon as
possible and in any event no later than September 30, 1999. Moreover, in the
event that we do not receive a satisfactory response from you regarding our
previous proposal by Wednesday, July 28th, we will be forced to take whatever
action is necessary to ensure that a meeting is held and that the rights of all
shareholders are protected.
Very truly yours,
VERTICAL FINANCIAL HOLDINGS
By: /s/ Jacob Agam
Jacob Agam, Chairman
cc: Michael Oliver, CFO and Secretary
David H. Kestel, Director
J. Nicholas England, Director
W. Joseph McClelland, Director
Avi Suriel, Director
Steven Katznelson, Rose Glen Capital
Exhibit 3
CUSIP NO. 45838M104 Page 11 of 16 Pages
VIA FACSIMILE - (919) 462-3081
July 29, 1999
J.W. Stealey
Chairman and Chief Executive Officer
iEntertainment Network, Inc.
215 Southport Drive, Suite 1000
Morrisville, North Carolina 27560
Dear Bill:
We have received you letter dated July 28, 1999. Although your stated
intentions with respect to an annual shareholders' meeting are laudable, your
letter does not propose any immediate actions. Rather, you continue to make
excuses why a meeting has not been held. Given the amount of time that has
elapsed since the last shareholders' meeting, we see no reason why a
shareholders' meeting should be further delayed. The statement that your
management and counsel have been busy with other matters does not justify
trampling shareholders' rights by avoiding the most basic aspect of proper
corporate governance.
Consequently, we hereby demand that you discontinue your delaying tactics and
immediately schedule the date for the annual shareholders' meeting. If such a
date is not established by Tuesday, August 3, 1999, we will be forced to pursue
any and all remedies, including legal action personally against the directors
of the Company and any members of management who are obstructing the rights of
shareholders, as well as seeking a court order directing that a meeting be
held.
Assuming, as you suggest, that your management and counsel are busy, we would
not object to scheduling the meeting sometime during the first two weeks of
October (rather than by the end of September) in order to provide you with
additional time to prepare your proxy solicitation materials; provided, that
the meeting date is scheduled immediately. With respect to your suggestion that
SEC concerns might prevent you from immediately fixing the meeting date, we
suggest that you consult your counsel because (a) you may not need to file
preliminary proxy materials and (b) even if you do, it is standard practice to
establish the meeting date prior to the preparation and filing of such
preliminary materials and, in the unlikely event of a full SEC review, to
reschedule the date if necessary.
<PAGE>
CUSIP NO. 45838M104 Page 12 of 16 Pages
We look forward to hearing from you.
Very truly yours,
VERTICAL FINANCIAL HOLDINGS
By: /s/ Jacob Agam
Jacob Agam, Chairman
cc: Michael Oliver, CFO and Secretary
David H. Kestel, Director
J. Nicholas England, Director
W. Joseph McClelland, Director
Exhibit 4
CUSIP NO. 45838M104 Page 13 of 16 Pages
AGREEMENT
This Agreement, dated August 16, 1999, is by and among Interactive Magic, Inc.,
a North Carolina corporation (the "Company"), and J.W. Stealey, an individual
("Stealey").
Whereas, Stealey currently serves as the Chairman and Chief Executive Officer
("CEO") of the Company: and
Whereas, the Company has recently sold its CD-ROM gaming business in order to
focus its efforts on its "Internet only" strategy; and
Whereas, the parties hereto desire to make certain modifications to the
managerial structure of the Company in order to further strengthen the skills
and experience of the Company's management structure within the areas of
e-commerce and Internet advertising;
Now therefore, for the good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Effective as of August 16, 1999, Stealey hereby resigns as the CEO of the
Company. Stealey shall continue to serve as non-executive Co-Chairman of the
Board without responsibility for day-to-day operations. The Company hereby
appoints Stealey as a consultant to the Company for the period commencing on the
date hereof and continuing until 31 December 2000. During such period, Stealey
shall be paid annual fees of $180,000, and shall be entitled to identical
benefits to those provided under his current Employment contract in section 5,
(including medical, car, car expenses, credit card for car expenses, cell phone,
computer, etc, except as limited by this Agreement). As a consultant, Stealey
shall perform such duties as shall be reasonably requested by the Company;
provided, that Stealey shall not be required to perform consulting duties for
more than 5 days per month unless agreed by the parties.
The parties hereto agree that Stealey's current Employment Agreement, as
amended, shall be terminated as of the date hereof and, except as provided
above, all rights and obligations of either party thereunder shall be
extinguished. The Company and Stealey each hereby release and forever discharge
the other party and each of their officers, directors and other affiliated
persons from and against any and all rights, claims, causes of action, damages
and liabilities of any nature or kind whatsoever arising at any time through the
date hereof, except to the extent arising under this Agreement. Without limiting
the generality of the foregoing, Stealey hereby waives and forever relinquishes
any and all rights he may have under his previous Employment Agreement or to
Termination Damages (as that term is defined in Section 8.1 of such Employment
Agreement).
<PAGE>
CUSIP NO. 45838M104 Page 14 of 16 Pages
2. Subject to approval by the Company's Board of Directors as required by law
and the Company Bylaws, the Company shall appoint James Hettinger, currently
the Director of Corporate Development, as the acting CEO, to serve until the
Company shall complete its executive search for a suitable replacement or until
a successor is duly elected and qualifies. Stealey agrees to call a Board
Meeting as soon as possible for this purpose. Mr. Stealey will also serve as
the Chairman of the Search committee to find the new CEO as part of his Board
of Directors duties.
3. The Company will use its best efforts to cause its financial institutions to
release Stealey from any and all of his personal guarantees of the Company's
indebtedness no later than October 31, 1999. In the event the Company shall
fail to remove all such guarantees, the Company shall establish a plan for the
repayment of such indebtedness (or the release of such guarantees) by November
30, 2000 which plan shall include, at a minimum, the repayment of at least
$50,000 of the indebtedness secured by Stealey's guarantees each month
commencing in November 1999 until all such indebtedness shall be repaid or until
the personal guarantees are released. In addition, in the event the Company
shall raise additional capital, the Company shall use its best efforts (subject
to restrictions imposed by the provider of such capital or by Rose Glen under
the terms of the Company's $4.0 million convertible note to Rose Glen or by any
other existing agreements of the Company) to utilize up to 25% of such capital
to repay indebtedness secured by Stealey guarantees until such indebtedness
shall be repaid in full. The parties hereto agree that the current outstanding
amount of indebtedness secured by Stealey guarantees is $1,000,000. Stealey has
approximately $1.5 million in restricted securities that guarantee the current
indebtedness. It is the Company's responsibility to get these guarantees reduced
or eliminated. The Company will pay Mr. Stealey 5% annual interest on the total
amount of the restricted securities beginning on 1 November 1999. As the Company
reduces the amount of restricted securities in Mr. Stealey's account, then the
principal on which the interest amount accrues will be reduced pro rata. Unless
the personal guarantees have been released, the Company will not draw down any
additional indebtedness secured by Stealey guarantees without Stealey's consent.
4. The Company has a marketing contract with Mr. Stealey on his personal
aircraft. That agreement is to terminated effective immediately upon the
Company's payment to Mr. Stealey in cash of $10,000 to take care of the
anticipated remaining expenses for the aircraft for 1999. This payment is due no
later than 15 September 1999. The Company does not intend to renew this
contract. The Company will have the use of the advertising on the aircraft
through December 1999, unless the aircraft is sold by Mr. Stealey.
5. The Company and Stealey agree that Stealey shall be granted certain
registration rights with respect to his shares in accordance with and subject to
the terms and conditions of the Registration Rights Agreement to be signed by
such parties attached hereto as Exhibit A.
<PAGE>
CUSIP NO. 45838M104 Page 15 of 16 Pages
6. The parties hereto agree to use their best efforts: (1) to cause the Board of
Directors to appoint Jacob Agam, Chairman of Vertical Financial Holdings, to
the vacancy on the Board resulting from the resignation of Avi Suriel from the
Board; (2) to elect Mr. Agam as Chairman of the Board; (3) provided Vertical
owns at least 10% of the outstanding shares of the Company, to allow Vertical to
appoint two additional nominees for election to the Board at the Company's
Annual Meeting (for a total of 3 from Vertical interests), and (4) provided that
Mr. Stealey owns at least 10% of the outstanding shares of the Company, to
accept Mr. Stealey and one more nominee from Mr. Stealey (together with
Vertical's three nominees) as the full Board slate to be nominated by the
Company for election at the Company's Annual Meeting. Stealey and Vertical agree
to vote, and to direct their nominees to vote, for each other's nominees for the
next two Board elections.
7. Subject to shareholder approval of the new corporate name at the next
Shareholders Meeting, the Company agrees that, following the name assignment
contemplated hereby, it no longer will use the original company name,
Interactive Magic or Imagic. The Company believes it will be completely out of
the use of the old Interactive Magic name and trademarks by the end of December
1999. The Company agrees to sell to Mr. Stealey the old Company name, logo, and
url (www.imagicgames.com) as the Company continues to make the change to its new
name, iEntertainment Network, or iEN. The Company agrees that Mr. Stealey shall
be assigned the Company name and logo as of 1 February 2000 (or earlier if the
Company is sold to or merged with a different company and operated under the new
Company name, on the closing of such an acquisition or sale). Mr. Stealey will
pay the Company $1,000 for these rights upon that assignment or the Company may
set off such amount against any amounts it then owes Stealey.
8. Until December 31, 2000, any press release that refers to Mr. Stealey will be
presented to Mr. Stealey for his comments and review prior to release.
9. Mr. Stealey and his Board nominee will receive the same Board compensation
offered to any of Vertical's nominees including Mr. Agam for the period they
will serve on the Board, (or such shorter period that Mr. Stealey's or his
nominee serves on the Company's Board.)
10. The Company will prepare a complete list of its indebtedness to Mr. Stealey
including all past expense accounts not paid to him and all interest currently
owed to him. It will pay all these outstanding debts by September 15, 1999. The
Company will keep a running tally of any interest on debts that are accruing to
Mr. Stealey and pay them within 30 days of the end of any quarter. The Company
will prepare a statement of stock ownership and option ownership for Mr.
Stealey. Mr. Stealey's options will still vest during his "consulting"
period until 31 December 2000 and for one year after the end of the "consulting"
period.
11. Although Mr. Stealey may again enter into the business of making Internet
Games, he will not be deemed "competing" with the Company for purposes of the
noncompetition restrictions in his employment agreement, if he does not entice
any of the Company's employees to leave within 17 months of the date of
this contract. Any other reference or limitation relating to "non-competition"
in the employment agreement is removed and deemed no longer in effect on Mr.
Stealey.
<PAGE>
CUSIP NO. 45838M104 Page 16 of 16 Pages
12. The Company also agrees to license to Mr. Stealey the ICONS 2 Internet
Gaming system on the best terms that they offer it to anyone else over the next
two years or the first three contracts implemented by the Company, whichever
comes first. Mr. Stealey can license the system anytime during this period.
The current best offer is to an Israeli phone company. Mr. Stealey may license
the product on the same terms and conditions offered in that or similar
contracts. He will be informed if any other more beneficial contract is offered
and his costs/fees adjusted accordingly.
Interactive Magic, Inc
By: /s/ Michael W. Oliver
Michael W. Oliver, Chief Financial Officer
/s/ J.W. Stealey
John W. Stealey
We agree to be bound by the provisions of Paragraph 6 above.
Vertical Financial Holdings
By: /s/ Jacob Agam
Name: Jacob Agam
Title: Chairman
